A UK inflation jump to 3.6% has been confirmed by the Office for National Statistics (ONS). This is an unexpected increase in the year to June from 3.4% in the year to May. Economists had predicted the rate would remain at 3.4% with a slight possibility of rising to 3.5%. Instead, it’s now at an 18-month high and considerably higher than the Bank of England’s target of 2%.
What has caused a UK inflation jump?
Fuel prices were the main contributor to the inflation rate hike. Whilst these prices dropped between May and June this year, it was only a slight drop compared with the same period last year. Air fares and rail fares have also increased. Transport costs overall rose to 1.7% in the year to June from 0.7% in the year to May.
Food inflation increased for the third consecutive month, reaching 4.5% in the year to June. This is the highest rate since February 2024. Higher employment costs and poor harvests are contributing factors to this. In particular, the prices for bread, cakes, cereals, meat, cheese, milk and eggs have gone up. Clothing and footwear prices have also increased.
Core inflation – excluding food, alcohol, tobacco and energy – was 3.7% in the year to June. This is an increase from 3.5% in the year to May. Services inflation remained at 4.7%, unchanged from May’s figure.
How does this UK inflation jump affect your mortgage?
The Bank of England (BoE) had predicted the inflation rate would stay at 3.4%. This latest figure, therefore, is a disappointing setback. Despite the jump in inflation, the anticipated base rate cut in August is still expected to happen. It currently stands at 4.25% but a slowdown in the labour market and GDP signals that a rate cut will still go ahead.
As rate cuts in August and later in the year had been expected, lenders had already started to reduce mortgage rates. Although inflation has increased, it’s hoped that this won’t change their decisions.
House price data for the year to May has also been released, showing an increase to 3.9%. The revised estimate for the year to April was 3.6%. House price inflation had previously slowed as a result of the stamp duty changes that came into force in April.
We’re here to help answer your mortgage concerns
If you’re concerned about how the UK inflation jump may impact your mortgage, give us a call on 01322 907 000. Our mortgage brokers are here to answer your queries, discuss your circumstances and advise you on possible solutions.